Mr Gareth Murphy, Director of Markets Supervision with the Central Bank of Ireland, recently addressed the Funds Congress 2013 about key changes to European financial regulation.
Highlighting from the outset that his views may not necessarily be shared by others at the Central Bank of Ireland or ESMA, Mr Murphy referred to the regulatory reform agenda for financial services as being both “ambitious and […] risky”.
Mr Murphy described the “alphabet-soup” of regulatory reform as spanning bank and capital liquidity, deposit protection and bank resolution, secondary markets trading, remuneration, depository liability, centralised clearing of derivatives, short-selling, product complexity and the use of collateral; to name but a few of the more significant areas of focus for European regulatory reform.
While recognising the current regulatory reform agenda to be one of the most important developments in financial services in the last two decades and acknowledging that few people would dispute the fact that substantial regulatory reform was needed, Mr Murphy nonetheless cited a number of concerns which he was aware had been expressed in relation to the current regulatory reform agenda from a global regulators’ perspective – including, lack of clarity on key priorities; insufficient co-ordination at a global level and inadequate cost-benefit analysis. He also expressed concern at “the risk that poor execution of [the reform] agenda will undermine the ultimate goals of regulation which is to support real economic activity and, in particular, the relationship between end-issuers and end-investors”.
Noting that “implementation matters as much as policy content”, Mr Murphy also observed that it would be “a significant missed opportunity and a waste of public and private sector resources if poor implementation of the regulatory agenda were to lead to rules which did not achieve their intended purpose”. Mr Murphy concluded his speech by observing that the purpose of regulation is to assist all parties, from end-issuers to end-investors, “to make sensible decisions in the face of uncertainty, aligning incentives and reducing information asymmetries without harming competition all the while allowing risk-taking activity to happen”. To help to bring this about he called upon the industry to reflect on what is driving the content of regulatory reform and to find ways to “engage more actively in how regulatory intervention is being delivered”. The financial services industry must “work hard to build trust and provide reliable solutions to investors”, Mr Murphy observed, and regulation “must seek to support this process”.